June 25, 1999
A Portrait: Martin Frankel Was
Ambitious, Cocky and Insecure
By ELLEN JOAN POLLOCK, MITCHELL PACELLE and DEBORAH
LOHSE
Staff Reporters of THE WALL STREET JOURNAL
One day, not too long ago, Martin Frankel bragged to a neighbor in his
exclusive Greenwich, Conn., enclave that when he wanted a glass of ginger
ale he had one servant to fetch the glass, a second to pour the soda and
another to pull up a chair.
These days, wherever he is, Mr. Frankel is probably pouring drinks in a
less-showy setting. He disappeared in early May, leaving in his wake a
mysterious fire in his Greenwich home, eight struggling insurance
companies scrambling to find their assets and a team of federal
investigators looking for him.
They believe Mr. Frankel absconded with
$335 million -- or more. But since those
estimates are based on records from Mr.
Frankel -- and he has a long history of
creating vague or misleading documents to
describe his trading -- the estimates may be
high.
What may set Mr. Frankel's case apart from
some other prominent white-collar financial
scandals is that his cockiness appeared to
mask personal insecurities and a modest set of
financial skills. While convicted Wall Street
felon Ivan Boesky hobnobbed with the likes
of Michael Milken, Mr. Frankel's business
associates were far less accomplished. One of
his earliest investors found him only by virtue of the Toledo, Ohio, yellow
pages. Later, when Mr. Frankel allegedly set up the Thunor Trust to
acquire insurance companies, he installed as its trustee a
respiratory-therapy-equipment salesman turned bank administrator. The
insurers, which turned over their assets to Mr. Frankel to invest, were
struggling to survive. Many specialized in writing policies to cover burial
expenses.
Big Plans
Mr. Frankel clearly aspired to the big time and was well on his way to
getting there, if a fleet of Mercedeses, several sprawling homes and an
entourage of young women is any evidence. He hoped to build an
insurance empire. He started a foundation and claimed -- falsely it now
appears -- close ties to a Vatican organization. He told a neighbor that
he
was worth enough to qualify for the Forbes 400 list of the wealthiest
individuals.
"He talked like he wanted to be a Nationwide or State [Farm] auto, one
of
those big boys," says Ed Krauss, who did some consulting for Mr.
Frankel.
But others remember him as the kind of guy who lived with his parents into
his 30s, and, when sued for financial improprieties, had his mother drive
him to a deposition at a lawyer's office. For all the hours spent talking
about financial strategy, he second-guessed himself when it came to pulling
the trigger on trades.
Mr. Frankel's life today is surely not the way he envisioned it. An
international news corps has descended on Greenwich, Toledo, and other
points where Mr. Frankel did business. Federal authorities are peeling
away his carefully constructed web of no fewer than six aliases.
Documents pulled from the embers in his Greenwich home show he was
enamored of astrology, and may have been laundering money.
A 'Heartwarmingly Goofy' Guy
"He's not a genius; he's not a financier," says John Creamer, a Toledo
lawyer who successfully represented investors in an arbitration against
Mr.
Frankel. "He's this kind of Woody Allen-ish character who people trust
because he doesn't appear to be very sophisticated. He comes across as
very goofy in a heartwarming way that would make you trust him. That,
combined with ruthlessness and a willingness to make representations not
based in reality, made him a lethal combination."
Mr. Frankel got his professional start in 1986 with John Schulte, a Toledo
broker who ran a small office affiliated with Dominick & Dominick,
a
securities firm. He quickly started ordering computers and other
machinery. "He was signing documents as though he was the owner," Mr.
Schulte said.
He refused to wear suits to work. "Based on his knowledge of the
markets, he felt he shouldn't be held to standards that others were held
to,"
says Ted Bitter, a client, at different times, of both brokers.
But according to Mr. Schulte, Mr. Frankel had only one significant client,
and there were irregularities in the account. After six months on the job,
Mr. Schulte says, he fired him for "lack of production and insubordination."
Barred by the SEC
Mr. Frankel struck off on his own, launching the Frankel Fund, which he
failed to register with regulators. He ran the fund out of his bedroom
in his
parents' Toledo home, setting up a row of rented machinery against one
bedroom wall, much of which he had trouble paying for, according to Mr.
Bitter. The bedroom, Mr. Bitter says, was "pretty much where he spent his
whole life." Mr. Bitter recalls hearing Mr. Frankel bickering with his
parents over household duties.
Frequently stressed out, "he tended to blame his parents for whatever was
wrong with his life," Mr. Bitter says. "He was nervous, tense, and he would
begin to second-guess himself and would just sit there and freeze up,"
says
Mr. Bitter, who says Mr. Frankel called it a "trading block."
The two didn't stay friends for long. Mr. Bitter and another Frankel Fund
investor sued Mr. Frankel when they couldn't get their money back. In
1991, the U.S. Securities and Exchange Commission filed a complaint
against him and he was barred from the securities business. Mr. Frankel
told the SEC that three members of deposed European royalty had
invested with him, says Mr. Creamer, who read the testimony.
Meanwhile, he had started a new fund in 1989, Creative Partners Fund
LP. "Never a Down Month," bragged Creative Partners' promotional
material. "We have adopted a conservative trading strategy," Mr. Frankel
wrote. "On average, we are in the market only ten to thirty percent of
the
time ... when we trade, we use only 10% of our capital."
Problems Grow
Creative Partners, which was never registered with Ohio authorities, was
short-lived. Donald Shuki, whose son worked for Creative Partners,
according to securities regulatory records, says he made a 14% or 15%
profit, but that is far from the 99% return Mr. Frankel claimed for the
fund's first year. But Mr. Schulte, Mr. Frankel's former boss, says other
investors lost money.
Mr. Schulte, meanwhile, lost his securities license and pleaded guilty
to
criminal tax and mail-fraud charges. He blames many of his problems on
Mr. Frankel. In 1989, he says, his wife and business partner Sonia Howe,
left him. Ms. Howe introduced Mr. Frankel as her boyfriend to her next
employer, Thomas F. White & Co., a San Francisco broker, according
to
Thomas White. Mr. Frankel tried unsuccessfully to convince Mr. White to
do business with him.
Mr. Frankel allegedly set up Thunor Trust in 1991 with $3.7 million, which
supposedly came from three investors, including $2.5 million from Ms.
Howe, according to a document filed with Tennessee regulators. Mark
Shuki, the son of the Creative Partners investor and then a 28-year-old
securities broker, put up $900,000, the document says. Mr. Krauss, who
was listed as having contributed $500,000, denies any knowledge of or
contribution to the trust. Ms. Howe didn't return phone calls. Mr. Shuki
couldn't be reached.
Somehow, it isn't clear how, Mr. Frankel hooked up with John Hackney,
a businessman from Franklin, Tenn., who wound up as trustee of Thunor
Trust. Taylor Moore, a friend who became an executive at some of the
insurers purchased by Thunor, said Mr. Hackney spent much of his time
dreaming up deals, and Thunor Trust was a prime opportunity.
String of Acquisitions
Around 1991, Mr. Hackney and Thunor Trust chose the first acquisition
target: financially troubled Franklin American Life Insurance Co. It paid
just $3.7 million. Thunor proceeded to buy at least eight other insurers,
most of them struggling.
Messrs. Frankel and Hackney spent hours on the phone talking about
subjects including bond trades by Mr. Frankel, whom Mr. Hackney knew
as "Eric," Mr. Moore says. Mr. Krauss, the consultant, says saving
insurers appealed to Mr. Frankel. He would say, "We want states to want
us to take over insurance companies," Mr. Krauss recalls. "I remember
him using the word 'sacred' " in reference to "protecting people's assets."
Mr. Frankel told Mr. Krauss he wanted to expand his insurance empire to
other states, including New York, New Jersey and Connecticut, Mr.
Krauss says.
Mr. Hackney, through his lawyers, says he was duped by Mr. Frankel.
Mr. Frankel moved in the early '90s to a secluded area of Greenwich. He
had shelves of books on options, investing, insurance and self motivation.
There also were more than 80 computers and satellite dishes, as well as
a
growing staff of young women.
The Curious Newcomer
Initially, some of Mr. Frankel's well-heeled neighbors welcomed the
curious newcomer who called himself Mike King, and whose disheveled
looks, glasses and nonstop talking reminded some of Woody Allen. But
some sophisticated neighbors felt his long-winded accounts of his life
and
business didn't quite add up.
"I remember saying to my wife, 'This guy's a total nut case,' " says one
neighbor, who became convinced that his new neighbor bordered on
paranoid. "He talked about wanting guards to protect him, and wanting
bulletproof glass put into his house. He said he always stays on the ground
floor of hotels because he was concerned about fire."
Mr. Frankel soon withdrew into a nearly agoraphobic lifestyle.
Nonetheless, he was creating increasing discomfort on the quiet street.
His
driveway was frequently filled with expensive cars and limousines, and
people came and went at all hours, despite a commercial-zoning ban. After
he struck a deal late last year to buy the house across the street for
$2.6
million, rumors swirled that Mr. Frankel's bodyguards were "carrying
satchels of money and grenades," one neighbor recalls.
This past November, some neighbors hired private investigator Michael
Henehan, who quickly determined Mike King was really Mr. Frankel, who
wasn't even supposed to be trading securities. People told Mr. Henehan
that the young women who were part of his growing entourage were found
through personal advertisements in the Village Voice.
Authorities Called In
The Mercedes cars, Mr. Henehan discovered, were leased to companies
that listed offices in Katonah, N.Y., but he found a Mailboxes Etc. at
the
address. Mr. Frankel was covering many of his local expenses with cash.
One person in town told Mr. Henehan: "I was hired to mail packages, but
I had to drive to Philadelphia to do it."
Late last year, Mr. Frankel approached his neighbors about buying several
other homes on the street. "He said he was going to connect all the homes
with covered walkways," one neighbor says.
When Mr. Henehan found Mr. Frankel subscribed to financial-data
services, he figured Mr. Frankel was violating his ban on trading securities.
So, in late December, he says, he met with an assistant U.S. attorney and
a Greenwich zoning-enforcement officer.
On April 5, a zoning official notified Mr. Frankel by letter that the town
had received "numerous complaints." The fences and guardhouse he had
erected required permits, and the volume of traffic suggested a business
operation. But to Mr. Frankel, the most alarming aspect of the letter may
have been that it was addressed to him by his real name: Martin Frankel.
Within 30 days, he and his entourage were gone.